Question

fill in the blank question
many companies choose to use lifo inventory costing during periods of rising purchase costs because reported cost of goods sold will be
(lowest/highest). this means that income taxes paid will be (lower/higher) than if the company
used fifo or weighted average inventory costing.
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Explanation:

• LIFO (Last - In, First - Out): When purchase costs are rising, under LIFO, the most recently (and higher - cost) inventory items are assumed to be sold first. So, the cost of goods sold (COGS) is calculated using these higher - cost items. This makes the reported COGS the highest among LIFO, FIFO (First - In, First - Out), and weighted - average methods during rising costs.
• Income Tax Impact: Since COGS is an expense that reduces net income. A higher COGS (under LIFO) leads to a lower net income. Income tax is calculated based on net income. So, with a lower net income (due to higher COGS), the income tax paid will be lower compared to using FIFO or weighted - average (where COGS is lower, net income is higher, and thus income tax is higher).

Answer:

First blank: highest; Second blank: lower.